Severe deficiencies in Edgartown’s wastewater department annual audit have prompted a fraud investigation by the Massachusetts’ district attorney office and state police.

The town’s annual audit by a private accounting firm found discrepancies between reported receipts from the department and a hand-written ledger used by private haulers when disposing of waste. The auditor also found the internal system used for the department’s billing and collection system faulty, increasing “the risk of errors and/or irregularities” because it operates under the same management.

Auditor Chris Rogers told the selectmen on Wednesday morning he would not sign the final report for the town until the fraud investigation was complete. Without the auditor’s signature on the report, Edgartown’s bond rating could be affected.

“They’re not billing the haulers based on what’s disposed, they’re relying on the private haulers writing down what they dispose on a manual logbook and that’s what the billing is from,” Mr. Rogers explained to the Gazette, adding:

“That’s just the beginning of the problem.”

As a result of the material difference between the manual ledger and the department’s receipts from a 2002 electronic keypad system, Mr. Rogers turned the matter over to the district attorney’s office. First assistant district attorney Brian Glenny confirmed the investigation is ongoing yesterday afternoon but would not comment further.

“The quantity of gallons billed to the independent haulers is derived from the manual log sheets completed by the haulers, as opposed to the electronic receipts generated by the metering system” at the wastewater facility, the draft report states. “In addition, copies of the electronic receipts are not maintained by the department. As a result, there is no evidence that the amounts billed to haulers are based on the electronic metering system.”

If fraud occurred, haulers wrote down less than they pumped or wrote down an inaccurate amount of how much Edgartown sewage they pumped. The department had charged a discounted 11 cents per gallon for Edgartown residents’ waste but as of January the cost is 28 cents per gallon for all sewage loads brought to the facility.

Wastewater facility manager Joe Alossso said the department received the original deficiency notice on Jan. 10, and then worked with the auditor on coming up with solutions to address their concerns. A new keypad system will be installed in the next two weeks that directly monitors the amount of waste disposed, instead of using the manual log sheets, at a cost of approximately $18,000.

Mr. Alosso said he has not seen the results of the audit nor has he been contacted by anyone regarding the investigation. He has provided receipts to the auditor for the past year and a half.

But Mr. Alosso expressed concern about the six Island companies who currently use the Edgartown wastewater facilities — Araujo Brothers, Jay Septic Service, Septic Solutions, TP Excavation and Septic Services, Acme, and Maciel and Sons Septic Services.

“I know when this first came out in January, the haulers were asking me about it, they seemed slightly apprehensive and a little bit nervous, but my advice to them was, ‘Whatever you’re asked, tell the truth,’” he said. “After the first week this surfaced, they had no contact with me.

“I would have a concern that if in fact they did lie that they betrayed a trust that we’ve had at the facility,” he added. “The auditor raises a very valid point, that as much as we all like to trust each other and think of ourselves as a small and good community, whenever there’s an opportunity for fraud you have to have a system in place to stop that.”

Haulers will now be checked in by facility staff and monitored as the waste is disposed of. Once the new system is installed, the septic will be recorded both electronically and by hand.